Omicron, supply shortages and politics are dampening the outlook for new vehicle sales
The Canadian automotive industry began 2002 much as it did in 2021—wondering how much longer the COVID virus will impact global supply issues, in particular the production shortage of semiconductor chips, along with some other issues that have manufacturers and dealerships concerned.
“If you had asked me a year ago, I would have thought we’d be a little further down the road than we are now, but I think we’re still going to be in the soup through 2022,” said David Adams, President of Global Automakers of Canada.
Joe McCabe, President and Chief Executive Officer of AutoForecast Solutions, offered a similar sobering outlook. “We see 2022 as everyone is still in pain, but that’s across the board, it’s not just in Canada,” said McCabe. “That’s a North American phenomenon. It’s about a six-month swing in most people’s conversations.”
McCabe said some analysts are saying the recovery could not happen until mid 2023 or even 2024. “We are currently calling for recovery later this year. Our forecast is based on a recovery path of Q3. If that’s not the case because we don’t see any kind of bottoming out on the recovery, we’ll keep moving the needle down. I wouldn’t pour in the concrete and say by July, 2022 we’ll be out of the woods. It’s going to be very fluid this year.”
The shortage of semiconductor chips is still a major concern. It resulted in a loss of about 10 million units of production globally in 2021 and about $220 billion in revenue, most of that in Europe and North America.
Omicron surge a concern
Adams said the ongoing chip shortage and other supply chain issues are “problematic” as far as getting new inventory into dealers’ hands. Adams said the real question will be the impact on vehicle sales early in the first quarter of 2022 because governments such as Ontario and Quebec are urging people to stay at home unless absolutely necessary to control the Omicron spread.
“The benefit of last year is that we kind of know what to expect this year when we’re moving back into more of a stringent kind of lockdown position,” said Adams. “Those things I don’t think are going to necessarily be a surprise.”
Adams said the ongoing chip shortage and other supply chain issues are “problematic” as far as getting new inventory into dealers’ hands.
Sales of new cars in Canada in 2021 totalled 1.638,398 units, a slight percentage increase from 1,661,560 from 2020, which fell 15.64 per cent from the year before when COVID first became a worldwide issue.
McCabe is projecting a slight increase of 1.77 million sales, assuming there is a “general recovery” with inventory increasing and strong consumer demand relative to the short supply.
Faced with little new inventory to sell and telling customers it could take several months for orders to be delivered, dealers are anxious.
“I have never seen anything like it and I have been in it since 1979,” said Robert Stein, President of Plaza Auto Group, which owns eight dealerships in Ontario. “Every day is a different day. We’ve got another wave now, is this going to slow it down or is it not? We thought (as an industry) we were going to start ramping up production and thought by mid-2022 we were going to start seeing some inventory again and by 2023 we’d be back up and rolling. So where are we, where are we going to go and what’s going to change tomorrow are the questions?”
Vaughn Wyant, President and Chief Executive Officer of the Wyant Group, which owns dealerships in Saskatchewan, Alberta and B.C., echoed Stein’s thoughts about the uncertainty going forward.
“At least for most of 2022 we’re going to be challenged,” he said. “Some talk about it getting a little bit better in the second half. That might be somewhat true for some of the OEMs, but it’s not going to get tremendously better in 2022 and some OEMs will have a tough time the whole year. I think 2023 is the earliest we’re going to see some relief in my view and 2024 and 2025 before it gets back to some semblance of normal.”
With supply tight, dealers are scrambling to find used cars to sell because that has turned into a hot market. The Canadian used wholesale market finished with a run of 21 consecutive weeks of price increases. Consumers are holding on to their existing vehicles, putting a premium on used cars.
The rise of Omicron resulted in the cancellation in December of all of Canada’s auto shows for 2022.
Canadian Deputy Prime Minister Chrystia Freeland and Trade Minister Mary Ng have threatened to impose tariffs on the U.S. if Biden’s bill goes forward in its current language.
While the organizers had gone to great lengths to put safety and health protocols in place, provincial regulations put significant restrictions on capacity size for indoor events. Once the Quebec and Toronto shows were cancelled for the second consecutive year, the Western Canadian shows followed suit for the third year in a row.
Canadian manufacturers are also concerned about U.S. President Joe Biden’s controversial Build Back Better plan that will provide rebates of up to $12,500 for electric vehicles manufactured in America, in particular $4,500 for cars built by labour unions.
Adams said everybody in the Canadian automotive industry would be happy if the bill contains a $7,500 credit without specifying the controversial built-in-America union clause.
Canadian Deputy Prime Minister Chrystia Freeland and Trade Minister Mary Ng have threatened to impose tariffs on the U.S. if Biden’s bill goes forward in its current language. Vehicles built in Canada total about 50 per cent U.S. content, and more than $22 billion worth of American auto parts are imported by Canadian manufacturers each year.
“That obviously casts a pall over the whole Canadian automotive industry if the intention is for our manufacturers to transition to building electric vehicles as well,” said Adams. “There’s not a big enough market. You are dependent on that U.S. market to be able to make big plants and that $12,500 disadvantage is not going to be a viable solution for companies looking at whether they should invest in Canada in terms of putting electric vehicle production into a facility there or the U.S. It’s pretty obvious where it’s going to go.”
McCabe said that Biden will try to reconfigure the plan and it could negatively impact Canada if, for example, there would be a $4,500 incentive for any U.S.-built vehicle regardless of it having anything to do with a union.
“I think there’s going to be some kind of retaliation of some cost impact to it if some new form of the Biden bill goes through,” he said. “Canada is a really important part of the North American and global manufacturing economy because of automotive.”
He said the long-term play for Canada is to solidly establish the country as a great spot for manufacturing, to help offset any tax incentives.
